E141: Balaji Srinivasan: The Rise of Network States and the Fall of Nation-States

You know, just like Rome succeeded Greece and Britain succeeded Rome and America succeeded Britain, I think the internet eventually succeeds America. If you think about Bitcoin, it's definitely appreciated more or the dollar is depreciated more against Bitcoin.
That's on the order of, last I calculated, about 8% a month for the last 10 years. What that means is since inception, the smart money has been exiting the dollar for Bitcoin.
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Here's some problems. High inflation, privacy violations, lack of shared consensus, costly energy, election controversy, security breaches, loss of manufacturing capability, too many other things to name, right? You can just keep doubling down on that, try to reform that system, right? Or you can build a better one.
Balaji Srinivasan. Balaji, you are the former CTO of Coinbase, a general partner at A16Z, the co-founder of Earn, the co-founder of Council, the co-founder of Teleport.
I'm getting tired going through all your background, but alongside being a VC and a co-founder, you're also Wall Street Journal bestselling author of The Network State, which I did actually read over the Christmas break. So welcome.
Great to be here. And that's The Network State, by the way, behind me on my shoulder over there.
So you can kind of see it. And you're working on the version two of the book.
Tell me about that. You know, I got the first version of the network state out July 4th, 2022, auspicious day, of course, for starting new countries.
And just as a pure Kindle book, and I basically became a book publisher and had to figure out all the Kindle formats and so on and so forth.

And it's actually, it hit number two globally on Amazon. And I tweeted that out at that time.
You know what number one was? It's one of the most popular categories on Amazon. It's billionaire romance.
I was competing for the number one spot with the, I think it's like the most eligible billionaire. That book, I think is, so it was a bestseller, but it really is sort of, I feel it's catalyzed a movement.
There's a lot of people talking about network state as a noun, as a phrase, sort of like Googling or Ubering or something like that. What gets lost on a lot of people on network state is it's a little bit esoteric or a little bit in the clouds.
Can you give us an example of a network state that you believe will be built in the future? Well, I give you an example of something that's close to a network state that was built in the past, and that's Israel. In the sense of it was a group of people without a land that got a country.
Now, of course, I recognize that Israel is quite controversial and so on today, but there's other precedents for the network state, like, for example, Singapore, startup country founded by Lee Kuan Yew, obviously America itself, maybe the original startup country, and actually India, which got its independence nonviolently. So if you add up those four precedents where you have the Israeli concept of a diasporic group of people that then assembles on a piece of territory, the Singaporean concept of a charismatic CEO founder, the American concept of, you know, Bill of Rights and negative rights and all the amazing things that the founders of the U.S.
came up with. And then the Indian concept of independence through nonviolence, that starts to get at the concept of what I think of as a network state, where, you know, in a sentence, we've started new companies, we've started new currencies, can we start new cities or even countries? And that's a premise.
How do you start a country? Something like in Israel or Singapore was started historically? Sure. So both of those are quite different, where Singapore got its independence involuntarily from Malaysia, whereas Israel was something which started with a book.
And Der Judenstadt, which was Theodor Herzl's book, was something that inspired a lot of people. And they thought Zionism was crazy in the late 1800s.
And he actually didn't just do a book. He also did a conference and he did a fund.
And that conference is still going today, the World Zionist Congress. And he had a fund that actually today, the descendant of it, the Jewish National Fund owns a big chunk of Israel.
So he was actually, if you go back and read the Jewish state, Theodore Herzl was like a startup entrepreneur, right? He was like a tech founder. He talks about the death of distance due to the steamships that were carrying people abroad and so on and so forth.
He reads in a very modern kind of way about, you know, here's a vision of what's possible. Can I, you know, get the people and the capital to make it happen? I think that the amazing aspect of Israel going from a group of people to reviving an ancient language and building the land, there's something really interesting about that.
And I'll show you a visual of how the network state might work. And if you kind of understand this visual, you basically kind of get the whole thing.
So the whole network state book is online at thenetworkstate.com, right? And this is from the chapter titled or the subchapter titled, The Network State in One Image. And do you see that zoomed in version? Okay.
So this is an example network state. What is it? It's like a physical social network.
It's a social network with, in this case, 1,729,314 people, but they've crowdfunded nodes that they live in around the world. So little towns and cul-de-sacs and so on and so forth.
Imagine if every Chinatown was networked together, if every little India, if every Brighton Beach, where the Jewish diaspora from the Soviet Union came. If those communities were not just physical communities, but were networked together, well, their collective population, annual income, and real estate footprint could be greater than that of a legacy nation state.
And the fundamental thing is that if Bitcoin was a decentralized currency, a network state is a decentralized country. It's spread out all over the world.
But their hearts are in one place. Their minds are in one place.
It's kind of like all of these people could in theory be in the same discord or in the same social network, um, or in the same cryptocurrency, even if they're physically separate. And that's actually the opposite of what's happened in countries that have extreme polarization.
If you have a lot of polarizations, people's heads and hearts are in two different places. Like, you on Mastodon and Blue Sky for one group and they're on Parler or Truth Social for another group.
So they may be in the same physical place, but their heads are separated. This is the opposite.
People are aligned on the same values, even if they're physically separated. And so here's how you'd actually build something like that.
So I'll refresh over here. This is like the gift version.
You start with one person in Japan and they get 17, 172, a thousand, 10,000, a hundred thousand, and eventually a million something people worldwide. And you notice the buildings

that they're crowdfunding increase in sophistication. You know, you go to now like

whole suburbs and then small cities, and then you're networking them together.

And one way of thinking about this, if you go and you look at the map of Indonesia, right? So you see how there's a group of islands that constitute Indonesia, but they're separated by ocean, yet they think of themselves as one country, right? So now imagine a group of piece of land that are separated by internet, but think of themselves as one country. And shouldn't the purpose of every network state to be in one geographical area, doesn't that simplify a lot of issues? Well, it also means you can get nuked and you can get invaded, right? And I know that sounds like dark or whatever, but if you think about, do you know why the internet was originally invented? The military wanted a communications network that could stay up in the event of a nuclear attack.
Okay, so the internet was built to resist a nuclear attack. And so one of the things that's happening now is we're starting to get a breakdown of the post-war order, you know, and I certainly wouldn't wish for it to happen.
But basically, I think that, you know, it's possible we actually do see, we came close maybe in 2022 and 2023 at various points to Putin's finger on the button or what have you, right? And we can't always rely on that, right? What percentage, for example, of your transactions and communications are done over the internet now? Outside of real estate, probably over 90%. Over 90%, right? And probably communications might be even higher than that, right? Like WhatsApp, Signal, et cetera, et cetera, if you count every one.
And yet we don't have election. We don't have internet native elections.
We don't have internet native legislation, right? I think people still aren't taking the internet seriously. It reminds me of the period of like 1913, the British Empire was dominant, but World War I hadn't happened yet.
And the monarchies were still around and all of the old world was still around. But underneath the surface, all this technological change was bubbling.
And there was industrial revolution and communism, all this stuff had been going on for decades. And then the whole old world just kind of collapsed in like four years, five years.
And then we entered roaring into the modern era, right? Do you remember the Social Network movie? You know what's amazing about that movie is if you go back and watch it, it's a great movie. It's very well done, inspired a whole generation of entrepreneurs.
Even if that wasn't Sorkin's intent, it was his result, right? If you go and look at the movie, there's something that is very notable by its absence from our, you know, sort of 2020 hindsight. You know what's missing? No.
There's absolutely no mention of politics in the movie, right? Social networking is portrayed as something which is like one young man's buildings from on, you know, it's as if, okay, yeah, it's got 500 million users, but it's like saying Pepsi got to 500 million people drinking it. It's fine and it's great, but it's not like, it's not like something of massive importance.
Everybody else can ignore it. It's just like people poking and liking each other online.
That's what it was thought of in the early 2010s. And yet at that time, in the early 2010s, the Arab Spring had happened.
Twitter and Facebook had helped cause revolutions abroad. Clearly they were of political importance.
But if you had said in 2011 that 10 years from now, the most important political issue in the world for at least a few days will be whether the president of the United States of America is able to tweet, right? No one

would have believed you. Even those people who had seen the Arab Spring and so on catalyzed by

these internet things, even those people who knew that these were massively valuable companies with

hundreds of millions of users that were highly engaged, it was a limit of imagination where they couldn't project out that all politics would become social media in the 2010s. And my view is that we have something very similar happening where in 2021, if you take Bitcoin, every bank and government knows about it.
We have hundreds of millions of holders worldwide. Uh, we have, there's many billion dollar companies that have been started, you know, either on Bitcoin directly or around it and so on.
And you have El Salvador that's actually changed its laws to make Bitcoin the national currency of a legacy state. And yet, despite all that, if I was to say that there's a scenario 10 years from now where the United States government and every government needs to hold Bitcoin in order to remain solvent, just like the president of the United States of America would need to hold Twitter to remain in power, that would seem like a crazy extrapolation from where we are.
But that's what it means in my view to take the internet seriously. I think if in the 2010s, all politics became social media, I think in the 2020s, all politics becomes crypto tribalism.
Let me pause here. Is that because crypto is essentially diluting power from everybody? So it's not as noticeable.
It's not necessarily taking from Republicans or Democrats. It's diluting everybody.
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Another way of putting it is, do you see that graph? Global currencies, 10-year returns versus a dollar, right? So this was actually a few months ago, like three months ago. So the numbers are actually even higher now because Bitcoin is higher than it was.
But essentially every fiat currency over the last 10 years has collapsed against the dollar. Some of them have been hyperinflated away and destroyed and so on.
Others, better managed currencies like the Singapore dollar or the Swiss franc have remained reasonably close to the dollar. But one way of thinking about it is lots of debt around the world is dollar denominated.
The US prints a lot of money. So therefore, everybody's sort of taxed invisibly or visibly by the money printing.
Okay. So all fiat currencies collapse against the dollar, but the dollar has collapsed against Bitcoin.
So since the inception of Bitcoin, you can calculate this out.

But you know the typical thing for inflation is supposed to be like 0.1% or rather 2% annual inflation, right?

So that means between 0.1% to 0.2% a month, okay?

Multiplied by 12.

And you can get the exact square root of 12 version, but you know what I mean, right?

So between 0.1% to 0.2% monthly inflation. And hyperinflation is thought of as 50% monthly inflation.
But if you think about Bitcoin, it's definitely appreciated more or the dollar is depreciated more against Bitcoin by, it's not as much as 50% a month, but it's on the order of, last I calculated, about 8% a month for the last 10 years. So that's not

0.1 or 0.2% inflation. It's not yet 50% inflation a month, but 8% a month for 10 years.
What that means is since inception, the smart money has been exiting the dollar for Bitcoin and Bitcoin has gone up by six orders of magnitude from one cent to like, you know, $30,000, $40,000, right? That's a really, in historical timeframes, right? If you zoomed out, that would just look like, like this, like a just total step function rise, you know, even though it didn't feel like that during the rise. And so what that means, what we're thinking about it is all these people, rather than, let's say, driving across the border to Switzerland and storing gold in Switzerland, they're taking a little shuttle up to the cloud and they're storing gold in the cloud.
Okay, it's like, it's as if these cloud countries have arisen, or at least cloud jurisdictions, which have better property rights and rule of law for many people around the world than their legacy state. And so if you think about it, what cryptocurrencies are is they're half of a government, the digital half, because they provide property rights, smart contracts, dispute resolution, monetary policy, identity.
For example, if you look at ENS, the Ethereum name system, that provides like identity online. Okay.
So ENS.domains. Okay.
And so for example, if I go to, let's say, vitalic.eth. Okay.
And look at his ENS. This is basically like a domain name that's also a username.
Okay. So it's got a lot of features of both, and it's a crypto address and so on.
This is like what internet native names, I think, are going to look like. Okay.
And so the reason I just bring all that up is I just don't think people really take the internet seriously enough. Here's one way of thinking about it.
You know, like the omnibus spending bills, like the legislation that's passed, right? Basically, it's like one giant bill and everybody shoves in their change at the last minute and it's passed. That's how it works in the US and other countries.
Okay. If you know how software engineering is done, it isn't like one giant change to the code that's pushed through once a year, which is this huge political fight and so on.
That then is pushed to affect 300 million people. If you have a user base, and we did a Coinbase, we had a user base in the hundreds of millions.
At Earn, I had like a million something users. So I've managed and certainly invested in companies with large two-sided marketplaces and social networks.

You don't usually roll a change out to every user without some testing.

Instead, you have a subset of them, like just 100,000 people, 10,000 people,

and you test the feature there and you see if it's causing some dramatic issues.

Like if you're going to hike, let's say Uber would test it in Australia first before they put out their new fee schedule to the rest of the world, for example. You gather the data there and you make sure your code changes are having the desired effect before you push it out to the rest of the world.
That is just good government because often you can have a change that is negative sum. Uber makes less money, the drivers make less money, and riders have a bad experience.
Everybody loses. Or you can have a change as a positive sum.
Everybody's happier, right? Like maybe a better rider locator thing and everybody's happier. Everybody makes more money.
Everybody gets their destination faster, right? You don't always know. And often, very often, there's a change that's unintentionally bad.
It's a bug. Oh, we did this and we thought it results in this, but it resulted in that.
Okay. Now compare that to how governments operate.
Governments, democratic governments will make changes to the law. There's a highly political process.
And it's just like something is pushed in there. And then they figure out what they just throw it over the fence and they let the courts and the lawyers and the people all just fight it out.
There's no provision for bug tracking or feedback or anything like that. There's no testing of what this law actually does on a 10,000 person population.
Everything is just pushed live to prod. If you used a, you know, a software engineering analogy, that's obviously not how it should be done.
And I believe that's not how it's going to be done in the future. Winston Churchill famously said, democracy is the worst form of government except every other one known to man.
I agree with that. But now comes digital currencies and digital truth.
Do you think that's the next evolution of an optimal society? So I actually think that what we're going to see is cryptocurrency, crypto democracy, crypto country, right? Cryptocurrency puts capitalism online. Crypto democracy can put democracy online.
Okay. And then with the fusion of those two, we actually get democratic capitalism 2.0 or 3.0 or 4.0.
I think of, you know, just like Rome succeeded Greece and Britain succeeded Rome and America succeeded Britain, I think the internet eventually succeeds America. And so how does that work? Let me be a little more specific.
So right now what's happening when you think of democracy, there's different definitions of democracy. So I don't want to offend.
I'm often very political, so I don't want to offend. Okay.
But you can think of one definition of democracy is let's call it blue democracy. And that is Democrat democracy.
Republicans have their own version. They'll say, it's not a democracy.
It's a Republic, partly because Republic for Republicans, I'm sure that's some subconscious aspect, but partly because they say, oh, you know, for example, the Senate is important and the courts are important. It's not just populist majority rule and so on and so forth.
There's a third very important version of democracy in the world, and that's Indian democracy. That's like a dark horse that's kind of rising and that's becoming more and more relevant on the world stage.
You know, India is a player in world events that it wasn't 10 years ago. And finally, there's technodemocracy or cryptodemocracy.
The reason I say there's at least four different versions, blue, red, Indian, and tech or cryptodemocracy,

is that democracy is a really big word. It's a word that can contain many things.
It's like,

if you think about Christianity, Christianity is a big word that contains both the ideology that

tore down the Roman empire and the ideology that buttressed the Holy Roman Empire. Okay.
Like communism contains both the ideology that caused the Bolshevik revolution and the modified version, which is, you know, a hammer and chickle on a Chinese worship in the South China Sea. Right.
So you have this very different version. I mean, what Chinese communism is, is not what Marx envisioned and Stalin is different from both of them, right? And this is similar to, you know, in religions, we understand that you can have, for example, Protestant and Catholic and Russian Orthodox or Sunni and Shiite, right? And so just like that, one realizes, okay, there's different flavors of democracy.
It's a big word and it contains a lot of things. Once we understand that there's no, like there's not one definition of democracy and there's going to be different versions, just like different versions of communism and different versions of Islam and different versions of Christianity.
These are huge. One way of thinking about it, these are social operating systems, right? And just like the Chinese did, you know, communism with Chinese characteristics, the Indians have done democracy with Dharmic developments.
So they have their own fork of democracy. They've taken a different direction.
And in fact, actually, if you think about it, that original British operating system, to take a metaphor, was forked by the Americans in one direction, the Israelis in another, the Singaporeans in another, and the Indians in yet another. All of them respect Great Britain, but they've taken it in different directions with a Chinese, Israeli, Indian, or American flavor.
So I say all of this to say, there's not just one thing of, oh, that's not democracy. Oh, you're not doing it right.
And so on and so forth. There's different versions of this that stress different things, but we recognize these as all having some origin in British common law.
And people might say, oh, Singapore is in a democracy or, oh, this or that country, it's a eroding democracy, but let's at least say that they share some of the code base. So with all that said, what does the next version look like? I actually believe in both, quote, capitalism and democracy, But if you think about capitalism, there's a huge difference between the techno capitalism of today, the industrial capitalism of mid-century with General Mills and General Motors and General Electric, and the agrarian capitalism of the 1800s, where it was all about the family farm.
Yeah, we use the word capitalism, but that again, it's a huge word, big word that contains very different eras. And if you had the metrics and the graphs in them, the number of transactions, the degree of decentralization, those things are very wildly among these things, even if there's a commonality in some ways of private property, things like the FDA or the SEC didn't even exist in the 1800s, yet we still consider that a capitalist country.
So what does that look like for democracy? First, there's already that saying the future is already here, but it's just not evenly distributed. So there's different versions of democracy that are already out there that are like next gen versions or internet versions.
One that's immediately recognizable is what Estonia has done. They have cryptographic democracy where your votes are cryptographically verifiable.
That's a place that Estonia gave us Skype. They gave us TransferWise.
This is a very tech-forward country, and they're real pioneers here. Singapore has something that's also worthy of note.

They have something called SyncPass.

And what SyncPass is, is it's if your driver's license and passport were on your phone and you could use it to log into websites. Okay.
And you start to think, okay, that's what identity becomes. That's what your password becomes.
It becomes single sign-on. That is to say your Google login, your key card for your home, your API key, your private key for your cryptocurrency, your ENS name, your passport, your driver's license, all of those things combine into like one piece of digital identity that gains you access online and offline and does your photo verification.
Okay. Now that's not just theoretical.
If you go to a website, for example, like snapshot.org. Okay.
So these are all these DAOs. These DAOs have, you know, in this case, that is 817,000 members, right? That's actually pretty big.
You know, most members of the United Nations are actually small countries. I can go and look at the exact numbers,

but I believe 50% have less than 10 million people and 20% have less than 1 million people. So many countries in the United Nations are actually smaller than this Dow.
And so you have these online organizations, 800,000 members, 208,000 members. And what do you see in each of these? If you go there, you will see proposals and you'll see votes, right? And the vote starts in these hours, who won the vote, right? These are like extremely consensus kinds of votes, right? But in other cases, you know, I'm sure I can find one where there's some, you know, argument or something like that.
It may not be like totally, you know, a hundred percent, right? See this one option one, option two, they're holding an internet plebiscite and it's not exactly 99. It's like 57 versus 31.
Right. And the thing is, you might say, oh, this is like, you know, just dumb people playing, you know, online, but they're allocating significant amounts of money here.
Right. I don't know exactly how much Arbitrum Treasury has, but you can go and look at it.
$6 billion. It's not nothing.
Is it $6 trillion? No, it's not $6 trillion. But again, this is larger than the budget of many countries, and they're doing online binding votes to allocate that capital.
That's pretty, pretty important, right? These people have all opted in to groups with governance and the internet and the code is governing their interactions, their disputes, their capital allocations. This is actually something that's very similar to like, you know, mid 1800s America, where people would go and self-organize on the frontier in various new towns and cities popping up in what is today, Minnesota or Missouri, except this is not happening in the physical world yet.
It's happening on the internet in these DAOs. Okay.
So this is what I mean by like techno democracy. Would you categorize a DAO as a form of network state? Is it a subset of network states? It's on the path to a network state.
It's like maybe a DAO. It's a network without a state.
Yeah, exactly. That's right.
Basically, it doesn't have the physicality that I think is important, but the digital part is a very important predecessor. Just the fact

that people can self-organize into these communities with binding votes for very large

amounts of money, by the way, right? Remember, it's not some country's laws ultimately that is,

you know, governing the allocation of this huge amount of capital. It is, you know, a blockchain,

right? A blockchain is a digital government that is handling all of these flows of funds

Thank you. is a blockchain.
A blockchain is a digital government that is handling all of these flows of funds, and it's completely auditable. Everybody can see what transactions are happening and how much money there is there and all this kind of stuff.
What are some resolutions that are relevant that might be of interest as use cases. Let's be honest.

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And see how Dilupa can help you work smarter. Good question.
So first of all, they're definitely funding software development. And that's something, you know, all your listeners understand, you know, engineers are expensive.
Testing is expensive, all that kind of stuff, right? So that right there is a big bucket. So they're investing in securing protocols.
They're investing in making it more user-friendly to use. They're investing in all of that kind of stuff, right? Software development.
A second thing many of them do is they invest in the community. And that is like some of them are actually starting to do more meetups, like physical meetups.
It's the Discord. It is bounties and prizes for the community.
For example, there's one called Super Team. So basically, if you join their community, you can do bounties, prizes, all this kind of stuff.
And so a kid in India or Nigeria or somewhere can just make money online by clicking buttons, right? So here's like an example. Let me see.
So here's like earnings.superteam.fund, right? And so they've paid out like $2 million for a thousand projects, like 2000 bucks a pop. That's a good amount of money in a lot of countries around the world, right? That's like a year's salary that a kid with a phone or like a Chromebook or something can now just earn on the internet, right? And so some really interesting stuff.
So that's the second big bucket. Let's call it community and bounties and crypto bounties and so on.
Okay. So do these projects and they complete these projects and they make money.
Okay. A third big bucket is content, right? And I think you're going to start to see a lot more high quality, uh, you know, movies, films, that kind of stuff come out, but initially podcasts for sure, you know, content that's interesting to the community on cryptography, on distributed computing, decentralized systems, all that kind of stuff.
And finally, a bucket

that's pretty interesting to me nowadays are things like VitaDAO, right? So this is something I invest in. So it's like, it's trying to do research outside of academia, right? Because ultimately, if you think about it, who's funding research? It's the public, right? So can we, rather than going from the public to tax dollars, to the government, to NIH, to the researcher, can you cut out some of those middleman steps and you have people just back the research that they believe in, right? And so one that's definitely been working, at least, you know, it looks like it's working, VitaDAO.

And it has researchers over here that get grants, okay, fund exceptional science.

And supporters over here, and everybody who wants to, you know, target longevity can now go and buy into this, right? And what's the business model? Well, many of these people will go and found companies, you know, maybe they'll found longevity companies or things related to that.

And then that VITA token might be something which, you know, those people who did that

get some shares in the company or what have you.

Somebody could take an ideological view about the FDA being too slow to procure drugs and

to create some new framework where they could tie that into kind of funding research.

Yeah, exactly. So here, like, here's a researcher like here's the researchers to try type of ecosystem.
Exactly. Exactly.
Right. So here, you know, these are grants over here.
So, you know, $4 million in research funded again, look, is it billions yet? No, but it's just started like a couple of years ago and, um, it's, it's pretty good. And then, you know, it's a, it's an avenue for, um, you know, people who want to be quote principal investigators, but maybe they don't want to wait till they're 60 years old.
And if you can do something good online, right? So here's on the supporter side. And there's actually a fair number of academics.
So that's like a fourth bucket research, right? So those four buckets are software development, community, content, research. And I think as we start doing more in the physical world, some of these DAOs will start getting meetups and start buying real estate together.
There's like a funny one called a Lynx DAO, which actually, you know, this is like the, you know, the early days of the internet, it was like, oh, pets.com. It's so dumb.
Right. But nowadays Chewy works, right? Chewy is a big company.
It's like a $9 billion public company. I mean, that's, that's legit.
Right. Even if the market is up or down.
Right. So pets.com, oh, it was so stupid.
No, it wasn't. Pets.com wasn't stupid.
It was just early. And then it did eventually work.
Right. And so I'll show you another one, which seems silly perhaps, but it's like, seems to be working.
And that is a Lynx DAO. Right.
And these people just love golf and, you know, so on, have been using crypto to go in like crowdfund golf courses around the world. Right.
And, you know, the thing about this is, where is this? this? The Lynx golf club, like private golf for everyone, you know, so you can basically join this and it's like a crowdfunded golf club. Right.
And that might seem dumb or what have you, but, uh, you know, when, uh, people came to the U S in the early 20th century, um, a big motivation for people like, you know, a lot of Jewish people were locked out of country clubs, golf clubs, and being able to start their own was like a big signal of, you know, finally, you know, being accepted in society and so on. And so, you know, guess what? Now people can build their own golf club.
I'm not a big golf guy or anything like that, right? But the real point is that you can crowdfund real estate with crypto, even if it starts with a seemingly silly application or this thing you might think is not that important. And that's something where the cloud, all of this gigantic amount of money that's swirling around online starts descending on the land.
You're printing out the cloud in real life in the same way that you'd print out a document. This is a general concept I have, which is obviously we know the concept of printing out a document, but when you go and order something from, you know, Amazon or Uber eats, right.
In a sense, you're like printing something out because you're hitting a button and a digital process then results in a physical process. And that thing arrives at your door, potentially that you could just have like a city just arise like this with the capital and the people just coming out from the internet.
And the one of that, um, so something that was network state inspired is something called Zuzalu. Um, have you heard of that? Yes.
That's Vitalik's project. Yes, exactly.
And, um And Vitalik basically read the network state and he's written about it, talked about how that was an inspiration for Zuzulu.

Zuzulu, basically they rented out like a village in, you know, Montenegro, right? And, you know, so essentially, so, you know, I wrote the network state, which said that communities defined by common interest can start off as purely on discussion forums, but then materialize into person hubs over time. What's cool about this is if you could do this and you could prove this, maybe we're just at the beginning of a new age of community formation and participatory democracy and opt-in capitalism and so on, right? taking the best values that shaped America, not saying, oh, I'm rejecting free speech or I'm rejecting free markets, but figuring out the version which people are opting into and which they like.
And you might have a hundred different or a thousand different of these communities. I need to update this so it's a little bit out of date.
Okay. But I have this thing, the network state dashboard, where I'm tracking all these startup societies around the world that are doing their own things that are kind of like Zuzalo.
Okay. Did you see that dashboard? Yep.
Yep. And I also had this conference, network state.
So this conference in Amsterdam, and this was a pretty big success, I think. If I show you the audience.
I saw the selfie. Yeah, the selfie.
There was a selfie. And this also shows us since the scale of the audience.
You just announced the fund. So maybe you could bring up the current investor base.
You have one of the most prolific investor bases of any funds. Here is the Biology Fund, Techno Capital for Technoradicals.
So investors, Neville, Brian Armstrong, and Emily Choi of Coinbase, Mark Anderson, Chris Dixon of ASIC and Z, David Sachs, Gary Tan, Toby Lucky, Ron Conway, Joe Lonsdale, Tyler and Cameron Winklevoss, the Solana founders, Notion founder, Brian Johnson Blueprint, Steve Sinofsky, who's very senior at Microsoft, David Lee, who's one of the early people at SV Angel and also at Samsung now. And I could go through the list of names here, but Ajay runs Mithril, Billion Dollar Fund, Jesse Powell founder of Crackin.
And outside of being some of the most prolific investors, there seems to be an ideological bent here. Are you looking for a specific type of LP for your fund as well? Yeah.
If you like all these people, you're going to like the Balji fund. And if you

don't, well, I'm sure there's plenty of other nice funds. It's really kind of that simple.

What I think on balance, what these folks stand for is, um, you know, freedom. And, uh, in my view, the best of American values and, um, you know, they stand for technological progress and, uh, they stand for all of these good things.
Um, and, uh, you know, that's, that's also the kind of stuff that I want to fund. Of course it has to make money and I think it will make will make a lot of money, but it'll also make freedom.
And the focus of your fund, you call it high risk seed. So tell me about that.
Sure. Sometimes categories get named in retrospect.
Like, was there a category called an accelerator at the time Y Combinator started its thing? Or, you know, the Teal Fellowship sort of created a category. A6 and Z didn't look like a normal VC fund when it was doing its thing and so on.
So, you know, I look at investing as a tool to build the world that we want to build. And, you know, one of the things that I had in this were, you know, there's a bunch of these failing

institutions and I'm going to list some of them off. Okay.
So here's some problems, right? High

inflation, privacy violations, lack of shared consensus, costly energy, election controversy,

security breaches, loss of manufacturing capability, low impulse control, the declining

post-war order, falling life expectancy, eroding freedoms, internet disrupted institutions, inadequate education, blocked physical construction, clickbait journalism, lawfare, insufficient political choice, and above all, in my view, the inaccessibility of the physical frontier. And how do you solve these kinds of things? Well, for example, with privacy violation, zero knowledge proofs, other kinds of things, end-to-end encryption, local storage, those can go after those.
Loss of manufacturing capability. Well, robotics actually has a lot of promise in bringing manufacturing to anything.
And maybe you can turn a lot of labor into electricity, which turns labor into capital, um, or other less obvious things like, uh, impulse control. So, you know, Mike Moritz, you know, one of the greatest investors of all time, he has this, uh, concept on the seven deadly sins.
Do you know this thing? Yeah. About the core needs.
What he means is that it's like, you know, it's just so, um, it's so incredibly difficult to build a business that you need to have some visceral human need. For example, Uber saves you time.
So that's sloth. DoorDash gets you food.
That's gluttony, right? Twitter raises your awareness of bad things. That's wrath.
Instagram is pride. Match.com finds you a date, right? Robinhood facilitates your transactions, greed.
Zillow helps you get a better house. So in extremists, these things that are providing, that are meeting legitimate human needs can become vices.
So that's why in a tongue in cheek way, he says, every startup serves one of the seven deadly sins. The problem is though, that if those companies are no longer startups and they become really huge companies, you know, I think they add value on balance, but there's some comments, for example, like the like Netflix once maybe tongue in cheek, but they said that their goal was to, was to make it so that you take away from a glass of wine with your spouse and just watch more Netflix.
Remember there's like a famous quote on that, right? And because they just want to maximize your time spent online. Okay, now you start to get into maybe a vice of sloth, right? It goes from a human need of maybe entertainment to a vice of sloth, right? And so how could you possibly defend against something like that when you're at the checkout counter and there's all of this very highly optimized, you know, stuff there that's sugary, that is maybe maximizing the profit of the guy selling it, but it's not benefiting your health.
Well, maybe you have a different kind of business that actually boosts, not vice, but virtue. For example, you have like a community where you have a membership to it and it's keto kosher.
And so there's no sugary food even allowed in it. Very much like kosher itself, where there's dietary restrictions that are just put into the supply chain and you just kind of see that something's kosher.
You just kind of enter this community and it's only salad and fresh fruit and fresh veggies and, you know, meat if you're into that. But there's no processed foods.
There's no sugar. You have to get in the car and drive outside of it to go and eat unhealthy.
So your defaults are set to a good level. And that's one of several creative solutions to try to have a corporate virtue as opposed to corporate vice.
And that's because the community is not optimizing on profit maximization. They're optimizing on other values.
Or more precisely that profit maximization is now aligned with the individual's values. It's a little bit like, you know, there was junk food, but now guess what? There's health food and there's companies that make money on health food.
And there's, you know, there's now like results-based gyms, which don't make money on the subscription, but make money if you actually achieve your fitness goals, right? So it's a little bit like, you know, you've probably managed a Salesforce, right? And not Salesforce, the company, but a Salesforce, like a, right? And they will do what you incentivize them to do, right? They're, the saying is coin operated, right? You set up incentives and they will run to those incentives. It's almost like a really powerful stallion.
And you point in a direction and it's going to run in that direction. If you point it off the cliff or if you didn't realize that there was a bump in the road in the future, well, that's kind of your fault in that sense.
You can do things where you incentivize salespeople with equity. But really what you want to do is just constantly monitor the incentives and change the incentives.
And so capital is this very powerful maximizing function, but it can't set the objective itself. You know, you have to and then some creativity comes out of, OK, well, we made a lot of money off of junk food.
Can we make a lot of money off of health food? Well, probably we can. We just need to hit the right cultural moment.
Right. Anyway, so that's just like one subroutine

of a subroutine of what I'm trying to do here. But really what it is, is all those problems I listed, I think they're internet first solutions to many of them.
There are ways that, and one way of thinking about that, if there's hope, it comes from tech. Okay.
That's the one thing that's working. Why do I say this one thing is working? Well, you have, um, you know, drug addiction and you have failing life expectancy and you have, uh, you know, military issues overseas and you have inflation and you have everything that the state is touching, which is real estate, it's healthcare, it's education.
Those things are getting wildly expensive in price. Okay.
And I can show you that graph. Do you know the graph I'm talking about? I think education has been compounding by 8% for like three decades.
Ackman actually had this great tweet where he's like, how is this thing getting so ridiculous expensive and the number of students isn't increasing? Like what business has increased its prices? At Harvard, you now have more administrators than students. Whatever the state props up rises in price, whatever technology drops falls in price, right? So this is like, you know, everything that the government touches, medical services, these are obviously related to education, right? Housing, even on this chart, it doesn't look that bad.
In certain markets, it's like absolutely terrible, right? And whereas the stuff that technology touches like TVs or cell phones, those fall relative to baseline, but these things rise. And now there's a bunch of people who say, oh, no, no, you're just, that's Baumol's cost disease.
Those things that go up in price, it's because there's labor associated with them and you're trying to blame it on the government. I'm like, well, ask yourself why they can't be automated.
Why don't we have more automated medicine? It's because thanks to AMA and to some extent FDA and a bunch of other and HHS and so on, you have to have a doctor in the loop for things that don't require a doctor. For example, you need a doctor to get your genome sequenced in some places.
That's considered like a diagnostic test. This is like saying you need a doctor to step on the scale, a doctor to look in the mirror.
Why do we need to put that through the medical system and register a billing event for everybody involved? That doesn't need to be like that. You want to push much more self-serve, you know? And similarly with childcare, there's regulations that say there can only be so many children cared for per adult, but you have a much larger number of children cared for by teacher in elementary school.
And yet that, you know, you could have 30 kids in a class, but there's a limit on childcare. It's one of the reasons childcare is very expensive in some jurisdictions Obviously, housing regulations prohibit you in a variety of ways.
There's also unions that make it tough. And I recognize, by the way, I'm sure some of the people watching this are managing large pensions or things like that.
No offense to any of these folks, I'm talking about the systemic effects. It's like the goal you know, the goal of having a high standard of living and, you know, a job with decency for workers.
Of course, one supports that. It's a mechanism, you know, that one can, can argue with.
But anyway, my, my, my point is that when you start scratching on these areas that have supposedly Baumol's cost disease and nothing can be done and so on and so forth. And then you go and look at construction abroad.
You're like, why is this a hundred X or a thousand X literally faster? I'm not, I'm not saying that as like some figure of speech. I mean, um, you know, I've posted videos, uh, I recognize that China is very unpopular.
Um, I have, nevertheless, they, they've built a lot very quickly and there's, there's something one can learn from their prefab and modular construction.

And there's videos, for example, of here, let me show you this.

What's the speed up here?

Okay, so it's nine hours.

Nine hours to build a train station.

If you were to unpack those scale efficiencies, what are those scale efficiencies?

Seven trains, 23 diggers.

They started at 6.30 p.m.

They're done by 3 a.m.

The reason I say that is that shows what's like, what's physically possible, right? When you go from nine hours to three years or five years for a station, right? That is a greater than thousand X difference, right? You know, divide 9,000 hours into 24 hours in a day.

That is... a greater than thousand X difference, right? You know, divide 9,000 hours, right? Into 24 hours in a day.
Right. And you know, that is, um, I think 2.5 times per day.
Yeah, exactly. That's right.
So if you go from nine hours to one year, that's, that's about a thousand X, right? 9,000 hours roughly in a year. Um, when you're a thousand X off from the state of the art, from what's physically feasible, you're going to fall way behind.
You're not in the game. And this is something Elon actually replied to a tweet of mine where I said, look, we're not, California isn't 10% off the state of the art.
It's like 1,000x off the state of the art in terms of speed. And if you've done any real estate, that compounds really fast.
If you can build a building a thousand X faster than the other guy, you can have it occupied and generating rent to build the next building and the next and the next and next. Your compounding rate is so much ridiculously faster than the other guy.
You're just going to completely outrun them. Thank you for listening to my conversation with Balogy.
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